EDITOR: DICK STERN

+100%

75%

CIO: BRAD LAMENSDORF

50%

25%

0%

-25%

LAMENSDORF MARKET
TIMING REPORT

APRIL 2016

s
The charts and graphs presented in LMTRs newsletter are not produced by LMTR. The interpretation
of the charts and graphs is only the opinion of LMTR and does not reflect the associated firms opinions.

Indicators Based on Asset

Allocation Flashing Warning Signs
for Market Over Longer Term
Sentiment indicators serve as a solid contrarian tool for monitoring
short-term risk/reward in the marketplace. However, other tools
are needed in order to assess longer-term risk/reward. This months
newsletter focuses on indicators that reinforce our negative view of
the stock market for the longer term.

1
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

-50%

LAMENSDORF MARKET TIMING REPORT

APRIL 2016

Quarterly Data 1954-09-30 to 2015-12-31 (Log Scale)

Standard & Poor's 500 Index

S&P 500 2015-12-31 = 2043.94

1,995

Standard & Poor's 500 Index

12-Month Sales x 1.01 (61.5-Year Median)

1,585

1,585

1,259

1,259

1,000

1,000

S&P 500
Gain/Annum When

794
631

Price/Sales Ratio Is:

501

794

% Gain/
Annum

% of
Time

0.86

28.96

7.55

40.43

12.40

30.60

631
Year

Sales

501

2005 Actual

874.32

398

2006 Actual

952.51

2007 Actual

1,025.08

316

2008 Actual

1,042.47

2009 Actual

908.40

200

158

2010 Actual

962.71

158

126

2011 Actual

1,052.83

126

100

2012 Actual

1,092.37

100

79

2013 Actual

1,116.81

2014 Actual

1,163.32

79

* Above 1.26

398

Between 0.83 and 1.26

316

Below 0.83

251

Price-to-sales of the S&P 500 is

at its second highest in history,
surpassed only by the 2000 tech
bubble. In our opinion, analyzing
the price-to-sales ratio is preferable
as a valuation guide because
earnings can be easily manipulated
for long periods of time. Sales, on
the other hand, are much more
difficult to engineer.

1,995

200

63

251

63

2015 NDR Estimate 1,130.16

50
40
1955
2.02
1.85
1.68
1.52
1.38
1.24
1.11
0.98
0.86
0.75
0.65
0.55
0.46

1960

1965

1970

1975

50
40

Source: S&P Dow Jones Indices, Standard & Poor's

S&P 500 at Median P/S 2015-12-31 = 1142.15

1980

1985

1990

1995

2000

2005

2010

2015

2015-12-31 = 1.81

S&P 500 Index Price-to-Sales Ratio

Price-to-Sales Linear Regression

Market Expensive

Sales based on S&P estimate for

latest quarter until actual sales released

Market Cheap

NDR estimates prior to 1992

2.02
1.85
1.68
1.52
1.38
1.24
1.11
0.98
0.86
0.75
0.65
0.55
0.46

Standard & Poor's 500 Price/Sales Ratio

DAVIS203
Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

Quarterly Data 3/31/1948 - 12/31/2015

Enterprise Value of Nonfinancial Corporations Relative to Cash Flow (EBITDA)

For Domestic Operations

12/31/2015 = 10.5x

10.8

10.8

10.5

10.5

10.2

10.2

9.9

9.9
9.6

9.6
9.3

9.3

Mean = 8.8x

9.0

9.0

8.7

8.7

8.4

8.4

8.1

8.1

7.8

7.8

7.5

7.5
7.2

7.2
6.9

Quarterly
Data 3/31/1948
- 12/31/2015
Enterprise Value = Long-Term
Debt + Equity
- Cash

Enterprise
ValueBoard
of Nonfinancial
Corporations Relative to Cash
Flow (EBITDA)
At Replacement
Cost
Source:
Federal Reserve
- Data subject to revisions
For Domestic Operations

10.8
20
10.5
19
10.2
18
19.9
7
16
19.6
5
19.3
4
19.0
3
12
18.7
1
18.4
0
9
8.1
8
7.8
7
7.5
6
5
7.2
4
6.9
3
2

1950

1955

1960

19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2

1975

1980

1985

1975

1980

1985

1990

1995

2000

Mean = 10.2%

Source: Federal Reserve Board - Data subject to revisions

1965

1970

Enterprise Value = Long-Term Debt + Equity - Cash

At Replacement Cost
12/31/2015 = 9.5%
1990

1995

2000

2005

2010

6.9

10.8
20
10.5
19
10.2
18
17
9.9
16
9.6
15
9.3
14
13
9.0
12
8.7
11
8.4
10
9
8.1
8
7.8
7
7.5
6
5
7.2
4
6.9
3
2

2015

Net Interest Payments of Nonfinancial Corporations Relative to Cash Flow (EBITDA)

20

19
Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/
18 .

Mean = 10.2%

Source: Department of Commerce

(E0623)

1970

Mean = 8.8x

Source:
1950 Department
1 9 5 5 of Commerce
1960
(E0623)
20

1965

2005 12/31/2015
2010 = 10.5x
2015

12/31/2015 = 9.5%

17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2

Net Interest Payments of Nonfinancial Corporations Relative toW

Cash
(EBITDA)
E S Flow
TPO
R T, C O N N E C T I C U T

Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

BRAD@LMTR.COM

Cash flow is another useful metric for

determining valuation. While it is possible
to massage cash flow, it is less susceptible
to manipulation when compared to
outright earnings. This chart shows that
the market is trading at a level that rivals
its highest point in 65 years. Similarly high
levels occurred in 1974, 2000 and 2007.
These incidents all preceded significant
corrections in the stock market.

LAMENSDORF MARKET TIMING REPORT

APRIL 2016

Quarterly Data 1951-12-31 to 2015-12-31

Stocks as a Percentage of Household Financial Assets (Adjusted for Pension Funds)

At 38.3%, the value of stocks as a

percent of household financial assets
are at their second highest level in
history. Only the 2000 tech bubble
rivals this, at 47.1%. These elevated
levels indicate that the general
public has already allocated massive
sums to the market, leaving little on
the sidelines for additional buying.
Moreover, foreign-held U.S. equities
as a percent of foreign-held U.S.
financial assets are also at an elevated
level, suggesting that foreign investors
have already aggressively allocated
to the market. From where will the
remaining buyers come?

48
47
46
45
44
43
42
41
40
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11

48
47
46
45
44
43
42
41
40
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11

47.1%

Households & Personal Trusts

(Includes Equity Mutual Funds and ETFs)

Equities ($17,942.7 B)
Total Finl Assets ($49,354.8 B)

= 36.4%

Pension Fund Entitlements have been subtracted

from the Total Financial Assets of Households and Personal Trusts.
The result helps to identify those assets that Households may have more
immediate control over. Therefore, this series is more likely to signify
individual investor equity investment levels.

38.3%

Data subject to revisions by the Federal Reserve Board

37.5%

36.9%

33.5%

Mean = 27.4%

20.9%
20.3%

17.3%

13.0%

Source: Federal Reserve Board

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

S485
Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

Quarterly Data 1951-12-31 to 2015-12-31

Foreign-Held U.S. Equities as a Percentage of Foreign-Held U.S. Financial Assets

31.9%

32.0
31.5
31.0
30.5
30.0
29.5
29.0
28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
19.0
18.5
18.0
17.5
17.0
16.5
16.0
15.5
15.0
14.5
14.0
13.5
13.0
12.5

Equities ($6,039.1 B)
Total Finl Assets ($23,032.5 B)

= 26.2%

28.9%
Equity value includes stocks directly held plus
assets in domestic equity mutual funds and ETFs.
Source: Federal Reserve
Data subject to revision

27.3%

Mean = 20.2%

13.5%

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

32.0
31.5
31.0
30.5
30.0
29.5
29.0
28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
19.0
18.5
18.0
17.5
17.0
16.5
16.0
15.5
15.0
14.5
14.0
13.5
13.0
12.5

2015

S481
Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html For data vendor disclaimers refer to www.ndr.com/vendorinfo/

3
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

LAMENSDORF MARKET TIMING REPORT

APRIL 2016

Each month, the ICI releases

information related to the mutual
fund industry. Included in this
data is the total amount of assets
invested in mutual funds, ETFs
and money market funds. A high
ratio indicates that investors have
become comfortable owning
stocks. Conversely, a low ratio
shows investor uncertainty. When
the ratio hits three, it signals that
there is an over-weighted skew in
ownership towards stock accounts.
On the other hand when the
ratio approaches one, it signals
that there is a much lower stock
allocation relative to money market
accounts. The current reading of
3.7% warrants extreme caution.
Copyright 2016, All Rights Reserved www.sentimentrader.com. Further distribution prohibited without prior permission.

Monthly Data 12/31/1965 - 2/29/2016 (Log Scale)

Standard & Poor's 500 Stock Index

193 1
158 5
130 1
106 8
87 6
71 9
59 0
48 5
39 8
32 6
26 8
22 0
18 1
14 8
12 2
10 0
82
67
55

1931
1585
1301
1068
876
719
590
485
398
326
268
220
181
148
122
100
82
67
55

S&P 500 Gain/Annum When:

Cash/Assets (%):
Above 9.5

Gain/
Annum

%
of Time

20. 1

14. 6

Between 6.9 and 9.5

* 6.9 and Below

6. 1

33. 5

2. 7

51. 8

NDR uses the following ICI categories

to compute the cash/assets ratio:
Domestic Equity = Capital Appreciation
+ Total Return

Source: S&P Dow Jones Indices

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2/29/2016 = 3.2%

12

Excessive Cash

Extreme Pessimism

12

Bullish

11

11

10

10

8
7

7
6

5.9

6.2

6
5.3

5
4

Bearish

Low Cash

Extreme Optimism
3.8

3.1

Source: Investment Company Institute, www.ici.org

Source: Ned Davis Research, Inc.

(S430)

3.5
2.7

Stock Mutual Funds' Cash/Assets Ratio

Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

4
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

Stock mutual funds cash-to-asset ratio is

at its lowest point in 50 years. This is an
indication that mutual fund managers are
being forced to use practically all available
cash to bolster performance and keep
up with the indexes. A paucity of cash on
hand puts mutual funds in a precarious
position for two major reasons. First,
theres little money left to average down
during market dips. Second, meager cash
reserves will more quickly lead to forced
selling to meet redemptions industrywide,
which could force, or certainly exacerbate,
a major selloff. This is reminiscent of the
old joke about the guy who orders his
broker to sell as the market is collapsing.
The reply from the broker? To Whom?

LAMENSDORF MARKET TIMING REPORT

APRIL 2016

LMTR has repeatedly expressed concern about the high amount of margin on the NYSE as investors borrow
aggressively against their stock. Are they using their borrowed money to purchase stock on margin? Or are
investors spending their borrowed proceeds in the real economy? The answer to this question is unclear. Weve
recently completed a joint margin study with SentimenTrader.com and have discovered that when margin debt
declines 7.5% or more year-over-year, stock market returns are extremely poor. The current year-over-year
decline is at -6.3%, which in our opinion is far too close for comfort to the sell.
5
W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM

LAMENSDORF MARKET TIMING REPORT

CONCLUSION
LMTR has spent the last two years shorting the market and covering our positions when
sentiment becomes too low. Our long-term pessimistic view, as explained in the current
issue, means we believe it would be folly to initiate long positions. Our exposure is
currently -37.5% net short.

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DISCLAIMER
Lamensdorf Market Timing Report is a publication intended to give analytical research
to the investment community. Lamensdorf Market Timing Report is not rendering
investment advice based on investment portfolios and is not registered as an
investment advisor in any jurisdiction. Information included in this report is derived
from many sources believed to be reliable but no representation is made that it is
accurate or complete, or that errors, if discovered, will be corrected. The authors of
this report have not audited the financial statements of the companies discussed
and do not represent that they are serving as independent public accountants with
respect to them. They have not audited the statements and therefore do not express
an opinion on them. The authors have also not conducted a thorough review of the
financial statements as defined by standards established by the AICPA.
This report is not intended, and shall not constitute, and nothing herein should be
construed as, an offer to sell or a solicitation of an offer to buy any securities referred
to in this report, or a buy or sell recommendation. Rather, this research is
intended to identify issues portfolio managers should be aware of for them to assess
their own opinion of positive or negative potential.
The LMTR newsletter is NOT affiliated with any ETFs Nor any investment Advisors.

W E S T P O R T, C O N N E C T I C U T
BRAD@LMTR.COM
Copyright 2016 Lamensdorf Market Timing Report.

APRIL 2016

BIO

Brad Lamensdorf, a seasoned money

manager and market strategist, is the
CIO of The Lamensdorf Market Timing
Report, a newsletter designed to
help investors improve performance
via market timing by assessing the
environment of the stock market using
a variety of technical, fundamental
and sentiment-oriented tools from
powerful independent research firms.
Many investors mechanically enter
and depart the market without a true
game plan. Studies have shown that
retail investors, in particular, are very
poor market timers, tending to invest
at or near market peaks and sell at or
near market lows. The newsletter is
designed to provide risk parameters for
both professional and retail investors
around the short-term stock market
environment, giving subscribers better
insight about when to allocate assets
into or out of the equity markets.
Lamensdorf, a frequent guest
commentator and analyst on major
business networks including CNBC, CNN
and Fox Business News, also serves
as a Portfolio Manager and Principal
of Ranger Alternative Management
LP, a sub-advisor to the Advisor
Shares Ranger Equity Bear Exchange
Traded Fund (NYSE: HDGE). In this
role, he conducts top-down technical
evaluations of broader market liquidity,
sentiment and breadth to help identify
short and intermediate-term market
trends, manage exposure and mitigate
risk. HDGE was launched in 2011 and
is the first and sole actively managed,
short-only ETF in existence.
Lamensdorf, also has managed
investment portfolios for the Hughes
family and was principal of Tarpon
Partners, managing a long/short fund
that was up more than 200% gross over
six years. Earlier in his career, he was as
an equity trader/market strategist for
Taylor and Company, the Bass brothers
trading arm, co-managing a short-only
strategy in a derivative format with
national exposure. He also served as
the in-house market timing strategist
for the entire internal and external
network of Bass managers.